Non-Resident Tax Australia
Like the IRS, the tax office in Australia treats residents and non-residents quite differently. Though it might seem like a pretty simple question to answer, ‘are you considered a resident for tax purposes?’ can be surprisingly difficult to determine if you are an Australian living overseas, someone who has recently arrived in Australia, or someone who is just here for an extended holiday. And though the concept of specialized taxing requirements for non-residents is not unique to Australia, there are different tax rates, expectations, and obligations depending on which category you fall into according to the ATO – so it’s important to know the answer.
Am I considered a resident or non-resident?
You don’t need to be an Australian citizen, or even permanently reside in Australia, to be considered a resident for tax purposes in the eyes of the ATO. You can also still be considered a foreign resident for tax purposes even if you’re an Australian citizen.
Resident or not, if you earn an income from within Australia, you will probably be required to submit a tax return – though the determining residency factors are a little different than those taken into account by the IRS. Generally, you will be considered a resident for tax purposes if your usual place of residence or abode is located within Australia – but other personal circumstances can also affect your residency status.
This is where the resides test comes in handy.
The resides test takes into account:
- Your usual place of abode (where you live most of the time)
- Family, business, and/or employment ties
- Where the majority of your assets are located
- Your social obligations and routines
- Whether you’re currently present in the country.
Though, not meeting the criteria of the resides test does not automatically make you a non-resident for tax purposes. You may still be considered an Australian tax resident if you meet the criteria for the three other residency tests:
- The Commonwealth Superannuation Fund Test (for Australian Government employees who are posted overseas and hold membership for a government superannuation fund)
- The 183-Day Test (if you do not have a domicile overseas and you spend more than 50% of the financial year in Australia)
- The Domicile Test (showing that your permanent home is in Australia and that you have no other abode in another country).
By utilising these residency tests and taking into account your personal circumstances, you should be able to figure out which category you fall into, whether that’s:
- An Australian resident for tax purposes
- A foreign resident, or
- A temporary resident.
Differences in Obligations Depending on Residential Status
The IRS requires that certain U.S. citizens and residents who are “officers, directors, or shareholders in certain foreign corporations file Form 5471 and schedules to satisfy the reporting requirements of sections 6038 and 6046, and related regulations.”
You can avoid filing Form 5471 if you do not acquire a shareholding of 10% or greater in a non-US company. If you acquire 10% or more of the shareholding of a non-US company, then you will need to report that on Form 5471 for the first year of the acquisition.
I want to know more about US taxes abroad
Resident For Tax Purposes
- Tax-free threshold applies
- All income is taxed, whether it is sourced from Australia or overseas
- Must pay the Medicare Levy
- Certain tax offsets are available
- Capital gains tax on all assets, either Australian or foreign
- Income from interest is assessed at the applicable tax rate.
Foreign Resident for Tax Purposes
- No tax-free threshold (pays tax on every dollar earned)
- Only taxed on income sourced within Australia (including Australian pensions or rental income)
- Don’t pay Medicare Levy (but also cannot make claims on medical expenses)
- Tax offsets are not usually available
- Capital gains tax is only applied to Australian assets
- Don’t need to declare Australian-sourced interest, dividends, or royalties (provided the company has already withheld tax).
Temporary Resident for Tax Purposes
- Must declare income sourced within Australia
- Must also declare any income earned overseas while you were a temporary resident of Australia.
Tax Rates for Non-Residents
The current tax rates for non-residents (22-23 financial year) are as follows:
- A taxable income between 0–$120,000 – 32.5 cents per $1
- $120,001–$180,000 – $39,00 + 37 cents per $1 over $120,000
- $180,001 and over – $61,200 + 45 cents per $1 over $180,000.
(A full table and breakdown of these rates can be found on the ATO’s website)
While these are higher than that of a resident, non-residents are not required to pay the Medicare levy or tax on any foreign income. Unless you have any Australian government-derived debt (such as a HELP/HECS loan), then you will be required to declare all of your income, including any sourced from overseas.
Working Holiday Makers
Australia’s Working Holiday Makers (WHM) program allows young people (18-30 years old) to have a year-long holiday where they may also undertake short-term work or study. If you’re employed in Australia under the WHM program, your employer will withhold tax from your pay and you will be required to lodge a tax return.
There is a separate tax rate for WHMs, and they apply regardless of residency status – though most will be considered a foreign resident.
Tax treaties (also known as double tax agreements) are formal agreements between the Australian Tax Office and other countries. They help not only prevent double taxation on individuals who may reside and earn income in more than one country, but they also help the relevant tax authorities to prevent avoidance and evasion of taxes.
Australia has a tax treaty with more than 40 countries, and a full list of these can be found on the Australian Treasury website.
If you are a resident of more than one country for tax purposes, your tax obligations may change and be affected by a tax treaty. These treaties help you avoid being taxed twice on the same income, and also help to resolve dual claims should the residency status of a taxpayer be questioned by both tax offices. In cases like these, there will usually be a ‘tie-breaker test’ that the ATO will have outlined with the other country. This test will help the relevant tax authorities to accurately allocate the taxing rights and determine which country is owed which tax.
While the higher tax rates for non-residents are also implemented in many other countries, including the US, the specific tax requirements and rates may differ from what you are used to. There are many resources and tax professionals available to help non-residents fulfill their tax obligations, avoid double taxation, and stay in the good graces of the ATO.